Google is playing catchup with Facebook and Microsoft in this one key area — expect to hear about it this week

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Google's biggest conference of the year, Google I/O, is happening this Thursday and Friday, and the company has one big area where it needs to catch up with competitors: Virtual reality.

Virtual reality refers to headset-like devices such as Facebook's Oculus, which totally immerses viewers in a 360-degree computer-generated world.

A slightly different field, augmented reality, like Microsoft's HoloLens or Google-backed Magic Leap, superimpose computer-generated images on top of the real world, which is viewed through transparent glasses.

The signs are all there that Google is ready to bet big on both fields.

Google Cardboard made headlines last year after the low-cost virtual reality viewer was distributed at the Google I/O conference. The inexpensive cardboard contraption, which looks a bit like a Viewmaster, lets you slot in a smartphone to view virtual reality games and experiences.

A year after dipping its toes into virtual reality, Google appears to be ready to do more than tinker around.

A recent analyst note from Macquarie Research analyst Ben Schachter cited Wiley's move from Search over to Google Cardboard as "yet another sign that virtual/ augmented reality (VR/AR) is real and its importance growing."

Schacter says companies are planning around the budding platforms simply out of fear of missing out — which was largely the case with the many companies who initially scoffed at the rise of mobile.

Here's what we might see later this week.

A new version of Android dedicated to virtual reality

Google is said to be hard at work on a new version of Android that's designed specifically for virtual reality, according to The Wall Street Journal, who claims the search giant has "tens of engineers" on the project.

Flickr/etnyk
This makes a lot of sense given Google's history with Android, a mobile operating that Google used to successfully offer an open-source alternative for developers to customize and alter to their liking. Android's open-source nature helped it spread quickly, and Google's backing helped it grow into the largest mobile operating system in the world.

Fast-forward to today, and Google could use Android to do for VR what Android did for mobile six years ago. Now that Android is already established, Google will probably have an easy time convincing developers to at least look into an Android VR operating system.

It's feasible that big players like Facebook's Oculus could implement the operating system as well. The mobile version of Oculus' virtual reality headset, the Samsung Gear VR, is currently powered by Samsung phones running Android, for example.

A new Google Cardboard?

It's been one year since Google first unveiled Cardboard headset, and we could certainly see a new and improved version at this year's Google I/O conference. Google hasn't been staying still, and while Google Cardboard can't offer as premium an experience when compared to the Oculus Rift, Sony's Project Morpheus, or even the Samsung Gear VR, that's not really the point.

Karyne Levy/Business Insider
Google Cardboard represents virtual reality for the masses. One of the biggest hurdles facing virtual reality adoption is the many pieces required for people to be able to play around in virtual reality — many of which are expensive.

The Oculus Rift will require a computer and its own headset, Sony's Project Morpheus will require a PlayStation 4, and the $200 Samsung Gear VR requires a high-end Samsung Galaxy Note 4 or Galaxy S6.

Google Cardboard, on the other hand, costs about $20, and can work with a wide range of smartphones and only requires a special Google Cardboard app.

It's open-source, and Google is clearly trying to make Google Cardboard as accessible as possible. Before you put it together, Google Cardboard is also a small package that could theoretically be handed out at the end of a concert or movie to provide an easy way for people who attended an event to relive an experience or check out behind-the-scenes features.

Google Glass and Magic Leap

You could argue Google has already been dabbling with augmented reality with Google Glass, its wearable headset that features a heads-up display that overlays information into your peripheral vision.

But after the much-hyped launch of its Glass Explorers Program, Google has since shut the program down and moved it under the experimental umbrella of Google X, led by Tony Fadell of Nest (Google continues to sell Glass to businesses).

It's been a while since we've heard about Google Glass, but there's a chance Google could reveal a new and improved version of its wearable at I/O.

Most people think of something like Microsoft's HoloLens or startup Magic Leap, however, when they think of augmented reality. A headset of some sort, the Magic Leap claims it can offer the most compelling augmented reality experience out there, projecting an image onto your eye to fool you into believing virtual items are present in the real world.

Google invested in Magic Leap last October, leading a $542 million funding round in which Google's Android and Chrome boss Sundar Pichai joined Magic Leap's board of directors and Google's VP of corporate development Don Harrison became a board observer.

A mockup from Magic Leap of what wearing its headset will be like.
Magic Leap

And while Magic Leap has been keeping to itself lately and likely won't be present at Google I/O, Google's investment combined with Pichai's past involvement with Android points to a continued collaboration that sees Google betting big on augmented reality.

Something else entirely?

Google has also been known to thrive on surprises at Google I/O. Nobody expected Google Cardboard at last year's conference, and Google could have another surprise up its sleeve.

For instance, Google could announce its own premium virtual reality headset to compete with the Oculus Rift and Sony Project Morpheus. In a sense, it would be following Google's approach to smartphones, allowing Google Cardboard to act as an accessible introduction to VR for newcomers while a potential premium headset would ensure it can hold its own against high-end competitors.

Whatever Google talks about at Google I/O on Thursday, you can bet we hear more about the search giant's plans for both virtual and augmented reality. The time is right.